Question

your crazy uncle left you a trust that will pay you $15,000 per year for the next 21 years with the first payment received one year from today. if the appropriate interest rate is 4.8 percent, what is the value of the payments today?

Answer 1

Step-by-step explanation:

To find the present value of the future payments, the formula for the present value of an annuity can be applied

PV = PMT * (1 - (1 + r)^(-n)) / r

Where:

PV is the present value

PMT is the payment per period

r is the interest rate per period

n is the total number of periods

In this question, the payment per period (PMT) is $15,000, the interest rate (r) is 4.8% (or 0.048), and the total number of periods (n) is 21.

To calculate the present value (PV):

PV = $15,000 * (1 - (1 + 0.048)^(-21)) / 0.048

PV = $205,676.99=$205677

Therefore the value of payments today is $205677